UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report: October 25, 2011

Commission file number 1-10948

 

 

OFFICE DEPOT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		59-2663954
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
6600 North Military Trail, Boca Raton, Florida		33496
(Address of principal executive offices)		(Zip Code)

(561) 438-4800

(Registrant’s telephone number, including area code)

Former name or former address, if changed since last report: N/A

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Attached hereto as Exhibit 99.1 and incorporated by reference herein is Office Depot, Inc.’s news release dated October 25, 2011, announcing its financial results for its fiscal third quarter 2011. This release also contains forward-looking statements relating to Office Depot’s fiscal year 2011.

This information is furnished pursuant to Item 2.02 of Form 8-K. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.

ITEM 9.01.     FINANCIAL STATEMENTS AND EXHIBITS

Exhibit 99.1             News release of Office Depot, Inc. issued on October 25, 2011.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				OFFICE DEPOT, INC.
Date: October 25, 2011				By:		/S/ ELISA D. GARCIA C.
				Elisa D. Garcia C.
				Executive Vice President, General Counsel
				and Corporate Secretary

 

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Exhibit 99.1

CONTACTS:

Brian Turcotte

Investor Relations

561-438-3657

brian.turcotte@officedepot.com

Brian Levine

Public Relations

561-438-2895

brian.levine@officedepot.com

OFFICE DEPOT ANNOUNCES THIRD QUARTER 2011 RESULTS

BOCA RATON, Fla., October 25, 2011 — Office Depot, Inc. (NYSE: ODP), celebrating 25 years as a leading global provider of office supplies and services, today announced results for the fiscal quarter ending September 24, 2011.

THIRD QUARTER RESULTS ¹

Total Company sales for the third quarter of 2011 were $2.8 billion, a 2% decrease compared to the third quarter of 2010. Excluding sales related to dispositions and deconsolidation in the fourth quarter of 2010 and an acquisition in the first quarter of 2011, constant currency sales in the third quarter of 2011 decreased 3% compared to the same period in the prior year.

The Company reported net earnings, after preferred stock dividends, of $92 million or $0.28 per diluted share in the third quarter of 2011, compared to $32 million or $0.12 per share in the third quarter of 2010.

Third quarter 2011 results included approximately $6 million of charges primarily related to restructuring activities and other costs intended to improve efficiency and benefit operations in future periods, as well as a benefit from the reversal of approximately $99 million of combined tax and interest accruals for uncertain tax positions. Excluding these charges and the benefit from the reversal of accruals, the Company would have had a net loss, after preferred stock dividends, of about $700 thousand or zero cents per share in the third quarter of 2011. Reported earnings for the third quarter of 2010 also included significant tax and interest expense benefits that positively impacted earnings by $0.14 per share. Gross margin increased approximately 150 basis points in the third quarter of 2011 compared to the third quarter of 2010, with increases recognized in all Divisions.

Total Company operating expenses increased $15 million in the third quarter of 2011, when compared with the prior year. Total Company operating expenses in the third quarter of 2011, when adjusted for charges, foreign exchange, acquisition and dispositions, would have decreased by $1 million compared with the prior year.

Earnings before interest and taxes, adjusted for charges, of $30 million in the third quarter of 2011, compared to $20 million in the prior year period.

 

 

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Includes non-GAAP information. Third quarter 2011 results include charges from restructuring and business process improvement activities, and a benefit from the reversal of tax and interest accruals for uncertain tax positions. Third quarter 2010 results include tax and interest benefits from the settlement of tax positions. Additional information is provided in our Form 10-Q for the fiscal quarter ending September 24, 2011. Reconciliations from GAAP to non-GAAP financial measures can be found in this release, as well as in the Investor Relations section of our corporate web site, www.officedepot.com, under the category Financial Information.

 

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The effective tax rate for the third quarter of 2011 was -139% compared to -155% for the same period in 2010. The third quarter of 2011 effective tax rate includes the reversal of $66 million in accruals for uncertain tax positions. The third quarter of 2010 effective tax rate includes tax benefits from the settlement of tax positions and filing adjustments of approximately $33 million.

“I’m pleased with the traction we’re getting in our North American businesses despite a lackluster U.S. economy,” said Neil Austrian, Office Depot’s Chairman and Chief Executive Officer. “The successful execution of our key business initiatives is beginning to move the needle.”

THIRD QUARTER DIVISION RESULTS

North American Retail Division

Third quarter 2011 sales in the North American Retail Division were $1.2 billion, down 4% from the prior year. Comparable store sales in the 1,108 stores that have been open for more than one year decreased 2% for the third quarter of 2011. The decline in comparable sales of computers and related products which began in the later part of the second quarter of 2011 continued during the third quarter and contributed significantly to the Division’s overall comparable sales decline. Positive comparable sales were reported in supplies, back-to-school essentials, Tech Depot Services and Copy and Print Depot. Furniture sales were essentially flat. Average order value was slightly negative and customer transaction counts declined approximately 2% compared to the same period last year. The decline in total sales for the third quarter also reflects the closing of stores in Canada during the second quarter of 2011.

The North American Retail Division reported an operating profit of approximately $42 million in the third quarter of 2011, compared to approximately $30 million in the same period of 2010. The increase reflects gross margin improvements from a higher sales mix of supplies and less technology products, better management of pricing and promotions, and lower property costs. These benefits were partially offset by the negative flow-through impact of lower sales, as well as higher expenses incurred during the quarter to fund key initiatives.

At the end of the third quarter of 2011, Office Depot operated 1,132 stores in the U.S. and Puerto Rico. The Division opened three new stores and closed two stores during the third quarter.

North American Business Solutions Division

Third quarter 2011 sales in the North American Business Solutions Division were $821 million, a 2% decrease compared to the third quarter of 2010. Average order value was flat and customer transaction counts were lower. Third quarter 2011 sales in the direct channel were flat, compared to the same period in 2010, while sales in the contract channel declined 3%, consistent with the declines experienced earlier in the year from customers not retained during the January 2011 transition to new public sector purchasing consortiums. Contract channel sales to large accounts and the Federal government increased, and sales to small- to medium-sized businesses decreased slightly. Sales of supplies, including paper and ink and toner, were lower, partially offset by increases in sales in the cleaning and break room categories.

The North American Business Solutions Division reported operating profit of approximately $39 million in the third quarter of 2011, compared to $25 million in the same period of the prior year. This increase reflects higher gross margins, operational improvements and expense management. Initiatives put in place in prior quarters to improve the Division’s overall cost structure contributed to lower distribution, advertising and payroll expenses.

International Division

Third quarter 2011 sales in the International Division were $783 million, reflecting an increase of 1% in U.S. dollars and a decrease of 7% in constant currencies compared to the third quarter of 2010. Excluding the revenue impact from the fourth quarter 2010 dispositions and deconsolidation, as well as

 

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the first quarter 2011 acquisition, constant currency sales were 2% lower than the comparable period of the prior year. The contract channel sales in constant currency increased overall with growth in the U.K. and Germany being partially offset from weakness in sales in the public sector in other European countries. Third quarter 2011 sales in the direct channel were lower across the Division. The retail channel sales decreased, excluding sales from the Division’s business in Israel that was divested in late 2010 and the first quarter 2011 acquisition in Sweden.

The International Division reported third quarter 2011 operating profit of approximately $19 million compared to $30 million in the same period of 2010. Included in this measure of Division operating profit is approximately $4 million of charges related to restructuring and process improvement activities. The charges primarily relate to severance and accrued lease costs, as well as costs incurred to drive process improvements. The remaining decline in Division operating profit reflects the negative flow-through impact of lower constant currency sales as well as the absence of earnings in 2011 from the Division’s divested business in Israel included in 2010 results. Also, certain pricing issues experienced in one European region during the first half of 2011 have improved but are not fully corrected.

The movement in exchange rates positively impacted operating profit in U.S. dollars by approximately $1 million for the third quarter of 2011 compared to the same period in 2010.

Other Matters

At the end of the third quarter of 2011, the Company had $766 million of availability under the Amended Credit Agreement and $453 million in cash and cash equivalents on hand, for a total of $1.2 billion in available liquidity.

Additional information on the Company’s third quarter 2011 results can be found in our Form 10-Q filed with the Securities and Exchange Commission on October 25, 2011. Additional information on the Company’s third quarter results can also be found in the Investor Relations section of our corporate website, www.officedepot.com, under the category Financial Information.

Non-GAAP Reconciliation

A reconciliation of GAAP results to non-GAAP results excluding certain items is presented in this release and also may be found in the Investor Relations section of our corporate website, www.officedepot.com, under the category Financial Information.

 

About Office Depot

Celebrating 25 years as a leading global provider of office supplies and services, Office Depot is Taking Care of Business for millions of customers around the globe. For the local corner store as well as Fortune 500 companies, Office Depot provides supplies and services to its customers through 1,656 worldwide retail stores, a dedicated sales force, top-rated catalogs and global e-commerce operations. Office Depot has annual sales of approximately $11.6 billion, and employs about 40,000 associates around the world. The Company provides more office supplies and services to more customers in more countries than any other company, and currently sells to customers directly or through affiliates in 58 countries.

Office Depot’s common stock is listed on the New York Stock Exchange under the symbol ODP. Additional press information can be found at: http://mediarelations.officedepot.com and http://socialpress.officedepot.com/.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: The Private Securities Litigation Reform Act of 1995, as amended, (the “Act”) provides protection from liability in private lawsuits for “forward-looking” statements made by public companies under certain circumstances, provided that the public company discloses with specificity the risk factors that may impact its future results. We want to take advantage of the “safe harbor” provisions of the Act. Certain statements made in this press release are forward-looking statements under the Act. Except for historical financial and business performance information, statements made in this press release should be considered forward-looking as referred to in the Act. Much of the information that looks towards future performance of our company is based on various factors and important assumptions about future events that may or may not actually come true. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements made in this press release. Certain risks and uncertainties are detailed from time to time in our filings with the United States Securities and Exchange Commission (“SEC”). You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. The Company’s SEC filings are readily obtainable at no charge at www.sec.gov and at www.freeEDGAR.com, as well as on a number of other commercial web sites.

 

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OFFICE DEPOT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

		September 24, 2011				December 25, 2010				September 25, 2010
Assets
Current assets:
Cash and cash equivalents		$	452,652			$	627,478			$	678,717
Receivables, net			918,580				963,787				987,013
Inventories			1,124,013				1,233,657				1,183,854
Prepaid expenses and other current assets			165,620				203,020				163,119
Total current assets			2,660,865				3,027,942				3,012,703
Property and equipment, net			1,081,905				1,157,013				1,219,151
Goodwill			61,608				19,431				19,431
Other intangible assets			36,752				21,840				22,634
Deferred income taxes			37,913				33,319				81,395
Other assets			291,448				309,892				313,628
Total assets		$	4,170,491			$	4,569,437			$	4,668,942
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable		$	877,090			$	1,080,276			$	1,045,121
Accrued expenses and other current liabilities			1,039,776				1,188,233				1,170,788
Income taxes payable			4,052				2,568				6,653
Short-term borrowings and current maturities of long-term debt			35,253				72,368				73,475
Total current liabilities			1,956,171				2,343,445				2,296,037
Deferred income taxes and other long-term liabilities			464,586				514,218				582,081
Long-term debt, net of current maturities			647,674				659,820				657,164
Total liabilities			3,068,431				3,517,483				3,535,282
Commitments and contingencies
Redeemable preferred stock, net (liquidation preference – $368,516 in 2011 and 2010			355,979				355,979				355,979
Stockholders’ equity:
Office Depot, Inc. stockholders’ equity:
Common stock—authorized 800,000,000 shares of $.01 par value; issued and outstanding shares – 286,382,961 in 2011, 283,059,236 in December 2010 and 282,982,123 in September 2010			2,864				2,831				2,830
Additional paid-in capital			1,143,938				1,161,409				1,164,525
Accumulated other comprehensive income			216,273				223,807				205,761
Accumulated deficit			(559,474	)			(634,818	)			(535,407	)
Treasury stock, at cost – 5,915,268 shares in 2011 and 2010			(57,733	)			(57,733	)			(57,733	)
Total Office Depot, Inc. stockholders’ equity			745,868				695,496				779,976
Noncontrolling interest			213				479				(2,295	)
Total stockholders’ equity			746,081				695,975				777,681
Total liabilities and stockholders’ equity		$	4,170,491			$	4,569,437			$	4,668,942

 

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OFFICE DEPOT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

		13 Weeks Ended								39 Weeks Ended
		September 24, 2011				September 25, 2010				September 24, 2011				September 25, 2010
Sales		$	2,836,737			$	2,899,717			$	8,519,838			$	8,671,162
Cost of goods sold and occupancy costs			1,981,717				2,070,534				5,992,578				6,161,560
Gross profit			855,020				829,183				2,527,260				2,509,602
Store and warehouse operating and selling expenses			672,621				665,905				2,013,170				1,998,339
General and administrative expenses			163,282				154,965				492,608				475,043
Operating profit			19,117				8,313				21,482				36,220
Other income (expense):
Interest income			317				2,513				1,158				3,493
Interest expense			17,306				(6,093	)			(19,512	)			(40,456	)
Miscellaneous income, net			5,536				11,189				19,869				21,969
Earnings before income taxes			42,276				15,922				22,997				21,226
Income tax benefit			(58,573	)			(24,700	)			(52,346	)			(32,496	)
Net earnings			100,849				40,622				75,343				53,722
Less: Net loss attributable to the noncontrolling interest			(23	)			(632	)			(1	)			(1,066	)
Net earnings attributable to Office Depot, Inc.			100,872				41,254				75,344				54,788
Preferred stock dividends			9,213				9,210				27,639				27,898
Net earnings available to common shareholders		$	91,659			$	32,044			$	47,705			$	26,890
Earnings per share:
Basic		$	0.29			$	0.12			$	0.17			$	0.10
Diluted			0.28				0.12				0.17				0.10
Weighted average number of common shares outstanding:
Basic			278,559				275,956				277,627				275,170
Diluted			357,036				275,956				277,627				275,170

 

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OFFICE DEPOT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		39 Weeks Ended
		September 24,				September 25,
		2011				2010
Cash flows from operating activities:
Net earnings		$	75,343			$	53,722
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			157,761				155,681
Charges for losses on inventories and receivables			42,834				42,784
Changes in working capital and other			(255,945	)			(70,301	)
Net cash provided by operating activities			19,993				181,886
Cash flows from investing activities:
Capital expenditures			(89,143	)			(120,469	)
Acquisition, net of cash acquired			(72,667	)			(10,952	)
Release of restricted cash			46,509				—
Proceeds from assets sold and other			7,891				25,824
Net cash used in investing activities			(107,410	)			(105,597	)
Cash flows from financing activities:
Proceeds from exercise of stock options			784				2,226
Acquisition of noncontrolling interests			(1,262	)			(21,786	)
Share transactions under employee related plans			(695	)			(1,281	)
Preferred stock dividends			(27,639	)			(18,688	)
Debt related fees			(9,945	)			(4,688	)
Net proceeds (payments) on long- and short-term borrowings			(58,583	)			(2,669	)
Net cash used in financing activities			(97,340	)			(46,886	)
Effect of exchange rate changes on cash and cash equivalents			9,931				(10,584	)
Net decrease in cash and cash equivalents			(174,826	)			18,819
Cash and cash equivalents at beginning of period			627,478				659,898
Cash and cash equivalents at end of period		$	452,652			$	678,717

 

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OFFICE DEPOT, INC.

GAAP to Non-GAAP Reconciliations

We report our results in accordance with accounting principles generally accepted in the United States (“GAAP”). We also review certain financial measures excluding impacts of transactions that are beyond our core operations (“non-GAAP”). A reconciliation of GAAP financial measures to non-GAAP financial measures and the limitations on their use may be accessed in the “Investor Relations” section of our corporate website, www.officedepot.com. Certain portions of those reconciliations are provided in the following tables. ($ in millions, except per share amounts)

 

			00000000				00000000				00000000				00000000				00000000
Q3 2011		GAAP				% of Sales				Charges				Non-GAAP				% of Sales
Gross profit		$	855.0				30.1	%		$	—			$	855.0				30.1	%
Operating expenses		$	835.9				29.5	%		$	(5.8	)		$	830.1				29.3	%
Operating profit (loss)		$	19.1				0.7	%		$	5.8			$	24.9				0.9	%
Net earnings (loss) available to common shareholders		$	91.6				3.2	%		$	(92.3	)		$	(0.7	)			—	%
Diluted earnings (loss) per share		$	0.28							$	(0.28	)		$	—
Q3 2010		GAAP				% of Sales				Charges				Non-GAAP				% of Sales
Gross profit		$	829.2				28.6	%		$	—			$	829.2				28.6	%
Operating expenses		$	820.9				28.3	%		$	—			$	820.9				28.3	%
Operating profit (loss)		$	8.3				0.3	%		$	—			$	8.3				0.3	%
Net earnings (loss) available to common shareholders		$	32.0				1.1	%		$	(38.5	)		$	(6.5	)			(0.2	)%
Diluted earnings (loss) per share		$	0.12							$	(0.14	)		$	(0.02	)
YTD 2011		GAAP				% of Sales				Charges				Non-GAAP				% of Sales
Gross profit		$	2,527.3				29.7	%		$	0.5			$	2,527.8				29.7	%
Operating expenses		$	2,505.8				29.4	%		$	(33.7	)		$	2,472.1				29.0	%
Operating profit (loss)		$	21.5				0.3	%		$	34.2			$	55.7				0.7	%
Net earnings (loss) available to common shareholders		$	47.7				0.6	%		$	(64.6	)		$	(16.9	)			(0.2	)%
Diluted earnings (loss) per share		$	0.17							$	0.23			$	(0.06	)
YTD 2010		GAAP				% of Sales				Charges				Non-GAAP				% of Sales
Gross profit		$	2,509.6				28.9	%		$	—			$	2,509.6				28.9	%
Operating expenses		$	2,473.4				28.5	%		$	—			$	2,473.4				28.5	%
Operating profit (loss)		$	36.2				0.4	%		$	—			$	36.2				0.4	%
Net earnings (loss) available to common shareholders		$	26.9				0.3	%		$	(38.5	)		$	(11.6	)			(0.1	)%
Diluted earnings (loss) per share		$	0.10							$	(0.14	)		$	(0.4	)

 

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OFFICE DEPOT, INC.

GAAP to Non-GAAP Reconciliations (Continued)

 

		Q3 2011				Q3 2010
Cash Flow Summary
Net cash provided by (used in) operating activities		$	168.0			$	147.2
Net cash provided by (used in) investing activities			(28.5	)			(29.2	)
Net cash provided by (used in) financing activities			(58.3	)			(30.0	)
Effect of exchange rate changes on cash and cash equivalents			(2.7	)			12.8
Net increase (decrease) in cash and cash equivalents		$	78.5			$	100.8
Free Cash Flow
Net cash provided by (used in) operating activities		$	168.0			$	147.2
Less: Capital expenditures			28.7				37.3
Free Cash Flow		$	139.3			$	109.9
Cash Flow Before Financing Activities
Net increase (decrease) in cash and cash equivalents		$	78.5			$	100.8
Less: Net cash provided by (used in) financing activities			(58.3	)			(30.0	)
Cash Flow Before Financing Activities		$	136.8			$	130.8
		YTD 2011				YTD 2010
Cash Flow Summary
Net cash provided by (used in) operating activities		$	20.0			$	181.9
Net cash provided by (used in) investing activities			(107.4	)			(105.6	)
Net cash provided by (used in) financing activities			(97.3	)			(46.9	)
Effect of exchange rate changes on cash and cash equivalents			9.9				(10.6	)
Net increase (decrease) in cash and cash equivalents		$	(174.8	)		$	18.8
Free Cash Flow
Net cash provided by (used in) operating activities		$	20.0			$	181.9
Less: Capital expenditures			89.1				120.5
Free Cash Flow		$	(69.1	)		$	61.4
Cash Flow Before Financing Activities
Net increase (decrease) in cash and cash equivalents		$	(174.8	)		$	18.8
Less: Net cash provided by (used in) financing activities			(97.3	)			(46.9	)
Cash Flow Before Financing Activities		$	(77.5	)		$	65.7

Free cash flow is calculated as net cash provided by (used in) operating activities less capital expenditures.

Cash flow before financing activities is calculated as the net increase (decrease) in cash and cash equivalents less net cash provided by (used in) financing activities.

 

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OFFICE DEPOT, INC.

DIVISION INFORMATION

(Unaudited)

North American Retail Division

 

		Third quarter								Year-to-Date
(Dollars in millions)		2011				2010				2011				2010
Sales		$	1,232.7			$	1,280.1			$	3,633.4			$	3,728.5
% change			(4	)%			(1	)%			(3	)%			(3	)%
Division operating profit		$	41.9			$	29.7			$	102.4			$	111.3
% of sales			3.4	%			2.3	%			2.8	%			3.0	%

North American Business Solutions Division

 

		Third quarter								Year-to-Date
(Dollars in millions)		2011				2010				2011				2010
Sales		$	820.9			$	841.8			$	2,430.4			$	2,492.7
% change			(2	)%			(4	)%			(2	)%			(6	)%
Division operating profit		$	39.1			$	25.1			$	100.4			$	59.3
% of sales			4.8	%			3.0	%			4.1	%			2.4	%

International Division

 

		Third quarter								Year-to-Date
(Dollars in millions)		2011				2010				2011				2010
Sales		$	783.2			$	777.8			$	2,456.0			$	2,450.0
% change			1	%			(10	)%			—	%			(4	)%
% change in constant currency			(7	)%			(3	)%			(6	)%			(3	)%
Division operating profit		$	19.5			$	29.7			$	59.9			$	90.2
% of sales			2.5	%			3.8	%			2.4	%			3.7	%

 

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OFFICE DEPOT, INC.

SELECTED FINANCIAL AND OPERATING DATA

(Unaudited)

Selected Operating Highlights

 

		13 Weeks Ended								39 Weeks Ended
		September 24, 2011				September 25, 2010				September 24, 2011				September 25, 2010
Store Statistics
United States and Canada:
Store count:
Stores opened			3				3				8				14
Stores closed			2				5				23				16
Stores relocated			3				2				9				2
Total U.S. and Canada stores			1,132				1,150				1,132				1,150
North American Retail Division square footage:			26,827,349				27,746,367
Average square footage per NAR store			23,699				24,127
International Division company-owned:
Store count:
Stores opened			—				2				3				6
Stores closed			1				1				8				2
Stores acquired			—				—				40				—
Total International company-owned stores			132				141				132				141

 

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